Bio Diesel leader Valero Energy Corp has been joined by other big oil firms Marathon Petroleum Corp., Phillips 66 and HollyFrontier in developing new projects designed to produce what’s been dubbed bio diesel or “renewable diesel,” a second-generation fuel made from animal fat that’s almost chemically identical to the petroleum form and offers the same performance.

The efforts are based using vegetable oils and animal fat, which is gaining new prominence among the top U.S. petroleum refiners, who see it as a potential growth engine in a climate change-driven future.

Early forms of biodiesel have been available for decades, but were said to lack the punch of the petroleum-based fuel, particularly in cold weather. The newest products, processed at much higher temperatures in specialized equipment, solves that issue.

Valero’s existing joint venture in the renewable diesel field could generate $1.4 billion in earnings by 2024, according to a report by the research firm Piper Jaffray & Co. That has seized the attention of the oil industry.

Patrick Flam, a Piper Jaffray analyst who has been following the emergence of renewable diesel noted, “Valero is the only one that’s broken it out on its own and shown how good this thing is. Others are looking at this and they’re saying, ‘Oh man those returns are actually pretty compelling.’”

The green social push toward the renewable fuel, which cuts back the emissions of petroleum-based diesel, comes at a time when gasoline use by drivers is flagging as vehicles get more fuel efficient. Drivers are becoming more concerned about climate change and state governments are intensifying their environmental regulations.

Flam added, “There is a pretty good drive from the shareholder side that we need to be growing this business somehow or another. Traditional refining is probably not the best way to do it at the moment.”

For now in the midst of a petroleum glut, the renewable fuel is more costly than the petroleum-based version on a wholesale basis, but the pump price is competitive thanks to tax credits designed to promote use of the environmentally friendly alternative.

Bio diesel first got rolling about 20 years ago. One form uses the same feedstock as the original biofuel, the scraps and fat left over when food companies process their products for the market, as well as leftover grease from restaurants, according to the Washington-based National Biodiesel Board. The other is using vegetable oils. Valero is the second-biggest maker of renewable diesel, trailing only Helsinki-based Neste Oyj. The San Antonio-based refiner, which owns a 50% stake in Diamond Green Diesel, has invested about $1 billion in developing and producing the fuel.

Valero Chief Executive Officer Joe Gorder told analysts and investors in October on a conference call, “We just think it’s a really good business. When we look at the opportunities to produce products where there is going to be growth in the market, and they’re going to have sustainably high margins, we look to renewable diesel.”

In the face of considerable market resistance, the combination of renewable diesel and biodiesel has been chipping away at traditional diesel’s dominance to a small single digit share.

About 2.6 billion gallons of both biodiesels were produced last year, according to the biodiesel board. The industry group forecasts production of the fuels to grow roughly 5% a year in the U.S. for the near future. By contrast, the petroleum diesel market for vehicle use stands at more than 40 billion gallons.

In the face of an ocean of vegetable oils and animal fats available, the plans include HollyFrontier announcing last week it will expand its Artesia, New Mexico, plant with new equipment to make as much as 125 million gallons a year, using soybean oil and other renewable feedstocks. It expects an internal rate of return of as much as 30% on the initiative. Phillips 66 plans several projects stretching from the U.K. to Washington state, including two plants built in Nevada in the next year with Ryze Renewables, its joint venture partner. Marathon is in the process of working to convert an existing refinery in North Dakota into a renewable diesel plant.

By no means are biodiesel or renewable diesel going to annihilate the petroleum diesel market, there isn’t enough grown and food grade products are even more profitable. For now and the expectation is, that these raw materials need a bigger and better market to support the increase in food production.


2 Comments so far

  1. The Dark Lord on December 5, 2019 9:17 AM

    so it produces the same amount of CO2 when burned but sounds like it produces ALOT more CO2 to produce than conventional diesel … but its RENEWABLE? thats its value proposition ?

  2. Altha Havey on December 5, 2019 9:40 PM

    Animal and vegetable oils and fat are widely-used in large amounts in processed food. Fats are included for a lot of reasons including helping dry processed food like biscuits stay moist. Home made biscuits would last just a week in a biscuit tin, purchase them from a store and they’re going to last a month or maybe more after opening. Fats and Oils in processed food requires additional preservatives in order to avoid them from going rancid.
    Fats and oils come in french fries, cakes, cheese, salad dressings, bread, frozen goodies and chocolate among a lot of similar processed food. The fats contained in these is often in addition to any natural fat contained in the beds base ingredients.

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